European Union finance ministers failed to agree on a strategy to mitigate the economic impact of the pandemic, prolonging a paralysis that casts doubt over the bloc's chances to weather the storm unscathed.
In an emergency teleconference that lasted more than 16 hours, finance chiefs couldn't reconcile their contrasting visions for the steps needed to help European economies recover, as countries led by France and Europe's hardest-hit south were pitted against Germany and other hawkish northern states over the need to issue joint debt.
A new call is now scheduled for Thursday.
Two officials familiar with the discussion said the main reason for the breakdown on Tuesday was a dispute between the Netherlands and Italy over the conditions attached to the potential use of credit lines from the euro area's bailout fund to finance the spending spree needed to cushion the pandemic's blow. Ministers also sparred over the wording of a joint statement hinting at the possible issuance of joint debt to finance the response.
French Finance Minister Bruno Le Maire and his German counterpart Olaf Scholz sent tweets after the meeting broke down, saying they would work with one another and calling on all European nations to rise to the "exceptional challenge" to reach an ambitious accord.
The ministers had been tasked by EU leaders to come up with a toolkit of measures to address the economic impact of the pandemic by the end of this week. But even as the virus continued to engulf their economies and medical systems they were unable to move past traditional dividing lines, putting in question the next steps in the continent's efforts to manage a looming recession.
With the euro area facing an economic slump of unprecedented scale, nations have instituted fiscal measures worth 3% of the EU gross domestic product as well as liquidity guarantees worth 18% of the bloc's output. The European Central Bank has also launched massive bond purchases in what could end up becoming the biggest economic rescue package the continent has seen in peacetime. But few believe that's sufficient.
And the stakes couldn't be higher. Last week, IHS Markit said its monthly measure of services and manufacturing in the euro area points to an annualized economic contraction of about 10%. And that's on top of job losses that are mounting across Europe, with Spain showing a record jobless-claims surge.
The finance ministers were discussing three main proposals to weather the crisis: employing the European Stability Mechanism, the euro-area's bailout fund, to offer credit lines worth up to 2% of output of the bloc's members; the creation of a pan-European Guarantee Fund to be managed by the European Investment Bank that could mobilize more than €200 billion in liquidity for companies; as well as an employment reinsurance scheme worth €100 billion.
The French government also put forward a plan that would create a temporary reserve worth 3% of EU GDP, have a lifetime of as long as 10 years, and would be funded by the joint issuance of debt to mutualise the cost of the crisis.
The plan is controversial as it resembles an idea backed by several euro-area countries for so-called coronabonds - joint debt instruments that would ease pressure on highly indebted countries like Italy and, to a lesser extent, Spain and France.While Germany has said that it supports measures to bolster an economic recovery, it has balked at any proposals that would see member states sharing debt. Other countries such as the Netherlands and Austria also oppose joint issuance, wary that they could end up on the hook for spending in the poorer south.
"The Netherlands was, is and remains against #eurobonds because this increases risks in Europe instead of reducing them," Dutch Finance Minister Wopke Hoekstra tweeted on Wednesday, adding that countries couldn't agree on attaching conditionality to the ESM lines of credit. "To the extent that the ESM is used for economic support, we think it wise to link it to taking economic measures."